A postelection forecast: U.S. GDP to grow 2.3 percent in 2017

Mekael Teshome

The election of Donald J. Trump as U.S. president elicited some late-night and early-morning jitters among global investors, but an economist told IL that regardless of the White House occupant, the U.S. gross domestic product should expand by about 2.3 percent in 2017.

The unemployment rate will decline, which will push wages higher, and the nation should reach full employment sometime in the middle of next year, said Mekael Teshome, the PNC Financial Services Group’s economist for the Kentucky and Indiana regions.

Kentucky’s economy should grow in line with the national economy, Teshome said, thanks to its strong manufacturing and transportation sectors. He said he expects unemployment in the Louisville region to be lower than the national rate, and job growth to be roughly equal to national trends. Kentucky’s unemployment rate in September was 5 percent, the same as the national rate.

Greater employment will drive consumer spending, which will enable the domestic economic engine to chug along, Teshome said. Coupled with persistent moderate GDP growth, the labor trends and rising inflation will prompt the Federal Reserve to raise interest rates in December and twice next year, each time by 0.25 percent, he said.

The outcome of the presidential election does not alter PNC’s forecast right away, because the long-term impact of the election will be determined more by the U.S. Congress and the laws it passes next year, he said.

Teshome said PNC would adjust its outlook once it becomes clear how any new legislation will affect spending, trade and the labor force, or both.

However, he said, stock markets typically react to presidential elections with volatility before the election and a rally afterward.

After two of the last three presidential elections, the S.&P. 500 posted a gain for the remainder of November.

U.S. stock market futures moved sharply lower after it became clear Tuesday night that Democratic nominee Hillary Clinton, the expected winner, was struggling. However, investors had calmed by Wednesday morning. The S.&P. 500 and the Dow Jones Industrial Average opened sharply lower, but recovered quickly. The S.&P., the Dow and the Nasdaq all were down less than 0.5 percent at 10:45 a.m.

“Any potential downside for stocks today will likely prove a wonderful buying opportunity,” he said in commentary Zachs released Wednesday morning.

And, he said, “The president is really not that powerful on their own to move the economy and stock market.”

Teshome also said that PNC expects the nation’s leaders to increase spending on infrastructure next year. The financial services group also forecasts action on taxation and the Affordable Care Act, which Trump and Republican leaders have said they wants to repeal and replace.

And, as usual, some risks to PNC’s forecast remain:

Global growth could be weaker than expected

The Chinese economy is slowing, and the British economy could take a significant hit as it exits the common European market

Geopolitical entanglements

Any of those risks could materially affect U.S. business interests or, at least, cause volatility in the stock market, Teshome said.

For the moment, he said, the U.S. economy is benefiting from a “made-in-America expansion.”